The next acts in the Toyota safety crisis

By IBT Staff Reporter On 02/23/10 AT 7:10 AM

Toyota Motor Corp, struggling with a fast-moving crisis that has tarnished its reputation for quality, is set to face U.S. lawmakers this week seeking answers about the cause of the largest carmaker's safety woes and how it handled evidence of the problems.

The heat could be further turned up on Toyota, as it now faces probes from U.S. prosecutors and safety regulators.

As the Toyota safety saga unfolds, here are some possible scenarios for the next acts:

MORE COSTLY SAFETY ACTION

Toyota has recalled more than 8 million vehicles globally for problems related to accelerator pedals that can become jammed by loose floormats or become stuck because of a flaw.

But National Highway Traffic Safety Administration investigators have begun looking into whether those explanations go far enough to explain reports of unintended acceleration. If NHTSA were to conclude that there was evidence of electronic problems with the throttle controls Toyota has been using for the past decade, that could lead to a broader recall or a more expensive fix.

Toyota has estimated that its recall will cost $2 billion by the end of March but analysts have raised concerns that total could go higher in the new fiscal year beginning in April.

Another source of additional costs could come from a broader application of brake override systems. Toyota has committed to install such systems on all new vehicles.

Some safety advocates have suggested that it should offer that fix to vehicles already on the road.

CONTINUING INVESTIGATIONS

Complications for Toyota from a range of investigations appear certain to continue long after Toyota President Akio Toyoda's gives testimony in Washington this week.

Lawmakers could look at how the automaker was treated by safety regulators during the Bush administration when complaints about unintended acceleration in its vehicles began rising. That would mean a second round of hearings.

At the same time, Toyota is now the target of a criminal investigation and an inquiry by the U.S. Securities and Exchange Commission.

Finally, NHTSA has its own review of Toyota under way, focusing on whether the carmaker acted in a timely way in announcing recalls. If regulators conclude Toyota dragged its feet, Toyota could face a penalty of up to $16.4 million.

That rebuke would keep a spotlight on Toyota's safety issues at a time when the automaker is hoping to shift the focus to regaining sales momentum.

Criminal charges, if they were brought, could further damage Toyota's reputation. Experts say prosecutors would likely focus on any false statement the company may have made to a federal agency such as NHTSA.

The SEC is likely looking into what Toyota knew, when it knew it, and whether it disclosed information selectively, experts said.

A key area of inquiry could be how the information delivered to dealers compared with the message to consumers or investors, and the timing of such disclosure.

For example, Toyota representatives told dealers on January 27 of an expansion of its floor mat recall and then waited hours before telling the public. It is odd because selective disclosure invites insider trading and is poor corporate governance, Columbia Law professor John Coffee said.

The SEC's inquiry could lead other automakers to tighten their disclosure policies regarding recall plans.

LAWSUITS

At last count, some 40 to 50 proposed class actions had been filed or were in the works against Toyota. The cases fall into two broad categories: lawsuits seeking damages for the diminished value of the vehicles or the loss of their use, and lawsuits seeking damages for death or injuries.

At least one class action, a case filed in Ohio, is seeking damages under the civil racketeering statute, which provides for triple damages if a defendant is found liable.

If internal Toyota documents show the company deliberately hid or destroyed documents, that will support a racketeering theory, said Tim Howard, a law professor at Northeastern University in Boston who is coordinating the work of 30 law firms in 21 states.

Others with financial ties to Toyota could also sue for damages, lawyers said, including shareholders, dealers, auto auction firms and rental car companies.

NHTSA REFORM

Critics charge that NHTSA's technical expertise appears to have lagged developments in new vehicle technology, meaning reforms that could subject Toyota and other major automakers to new kinds of scrutiny.

Even though advanced autos like Toyota's Lexus models now run as much computer code as fighter jets, NHTSA has not kept pace with the changes, critics charge, noting that it does not employ any electrical or software engineers.

Another potential area of reform could target disclosure. A review of the records shows that U.S. safety regulators considered a broader set of risks for Toyota vehicles but did not make those concerns public in 2004 or 2007.

The NHTSA website that compiles consumer complaints is also notoriously difficult to navigate or for outsiders to use as a way to track potential safety problems.

Reforms could take aim at making safety regulation more timely and making the workings of the U.S. safety agency more transparent.